When someone like
Rupert Murdoch
sells a business he has owned for about 20 years, it inevitably leads to questions about his motivations.

There is added intrigue when the buyer, John Chambers at Cisco Systems, is regarded as a chief executive who has lost his way.

The fact that Chambers paid Murdoch’s
News Corp
top dollar for the business, NDS Group, makes Chanticleer wonder if one of the world’s greatest deal makers has pulled off another coup.

Whether Murdoch has pulled off a master stroke or not, there are broader lessons from this deal for those investors attracted to the high flying technology sector. Investing in technology is a global game because the biggest names, the fastest growing companies and the most profitably opportunities are in offshore markets.

However, lower barriers to entry and convenient tools such as exchange traded funds have opened the door for Australians to get relatively easy access to stocks like Google, Apple, Amazon and, dare I say it, Cisco Systems. News Corp is of course trading on the Australian Securities Exchange.

There is another reason why the NDS sale by News is worth closer examination.

Media moguls sometimes think alike and one wonders if
James Packer
also wants to get out at the top of the Australian pay TV market with the sale of his interest in Consolidated Media Holdings.

Packer is a likely seller of Consolidated Media, which owns 25 per cent of pay TV group Foxtel and half of Premier Media, which owns Fox Sports. Potential buyers of Consolidated Media include
Telstra
, which owns half of Foxtel, Murdoch’s Australian arm, News Ltd, which owns 25 per cent of Foxtel and half of Premier Media, and
Kerry Stokes
, who owns
Seven West Media
and 24 per cent of
Consolidated Media
.

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Talk this week of a potential Dutch auction of Consolidated Media saw the shares spike upwards by about 5 per cent.

But there are traps for anyone wishing to punt on media investments. Just ask those bottom fishers who bought shares in
Fairfax Media
, which publishes this newspaper, at more than $1 a year ago. Or ask
Lachlan Murdoch
, who paid a high price for shares in
Ten Network Holdings
in 2010 only to see the stock price slump heavily.

Returning to Murdoch senior’s deal this week, one of the more interesting aspects is that it involves one of the most enduring characters in the technology world. Cisco chief John Chambers is a legend who rode the tech boom to a peak in 2000 selling “Indian solutions" which translated to end-to-end solutions. He has been Cisco CEO for 17 years.

Putting his distinctive accent to one side, Chambers was on top of the world before the tech crash because Cisco was the internet. It supplied all the routers and switches that connected the world.

But like so many technology companies it became arrogant and complacent. It is surprising there has been no change at the top considering companies like the Chinese telco equipment group Huawei has been eating Cisco’s lunch for the past five years.

It’s in that context that Chambers was desperate to do a deal with Murdoch to transform Cisco’s business so that it was less reliant on supplying the internet pipes and more tied to services around content delivery.

Cisco’s stock has been range-bound for about 10 years and nothing Chambers has done to diversify the earnings has changed that. He has made bets, large and small, on all sorts of technologies over the years, including one before the bubble burst in 2000 that made a handful of Australian scientists rich. This was the purchase of Australian wireless company, Radiata, for $567 million in cash and shares.

Other deals have been peculiar. In March 2009, Cisco bought a consumer electronics firm called Flip for $US590 million. Cisco had no expertise in this area and that showed in the dismal performance of Flip, which was the subject of a $US400 million write-off.

The decision to buy NDS Group from Murdoch is understandable. The target company describes itself as a creator of technologies and applications that enable pay TV operators to securely deliver digital content to TV set-top boxes, digital video recorders, PCs, mobiles and other multimedia devices.

About 90 of the world’s leading pay TV platforms rely on NDS products and about 125 million households worldwide use its technology.

Murdoch was quick to see the importance of owning a share in NDS and get access to a technology that can protect the security of delivery of pay TV. Murdoch’s News Corp made its first investment in NDS in 1992. It was listed on New York’s Nasdaq stock exchange in 1999 and was then taken private in 2009 in partnership with investor Permira, which owned 51 per cent of the company.

But the deal represents about 15 times this year’s expected underlying earnings and about 14 times next year’s underlying earnings, according to analysts at Nomura. Also, the analysts have highlighted the volatility of earnings from NDS in recent years.

Chambers is paying a huge premium for a business that he plans to integrate into Cisco’s existing set-top and video services businesses. He says it will lift Cisco’s revenue streams from set-top boxes into more profitable services and software-based architecture.

Israeli-Australian technology analyst Gilad Greenbaum says Cisco is trying to turn itself into a global services company. He says it is possible Cisco will convert NDS into a full interactive TV technology and services platform that will compete with Google and Apple.

NDS’s strong video streaming technology will complement Cisco’s powerful position in a market where the entertainment streaming side is worth about $US26 billion a year, he says.

One difference between this and other Cisco purchases is that NDS is a mature company with proven technology.

Murdoch, meanwhile, is on a roll. News Corp shares are up 48 per cent since August last year when the telephone hacking scandal in London escalated substantially.

He has picked up $US2.45 billion in cash at a time when he is already sitting on $US11 billion. He did not need the money.

That suggests Murdoch thinks NDS will find it harder in future to deliver earnings growth. He might well be saying that as a content creator and distributor News will have more pricing power than suppliers of software that can be commoditised.

That brings us to Packer and why he might be willing to rid himself of the last vestiges of media assets built up by his father.

One possible argument in favour of selling a company that owns a stake in Foxtel is that it is no longer a growth company. Foxtel’s subscriber growth is flat whereas the opportunities in gaming, which is Packer’s preferred asset, are phenomenal, particularly in Asia. His move on
Echo Entertainment
and pitch for a hotel at Barangaroo is part of trying to capture that Asian gaming growth in Australia.

Meantime, the set-top boxes that connect customers to pay TV are likely to be subsumed inside the TV itself. That trend and the advent of a broadband monopoly provider in the NBN Co will make it even harder for Foxtel as it faces competition from Apple TV, Google TV and possibly Cisco TV.